LOOKING INTO THE ABYSS

Last week’s Consilium hosted by the Centre for Independent Studies took a look into the abyss of sovereign default in Back from the Brink: Fiscal Disasters and Recoveries. “Kicking the can down the road” was definitely the phrase du jour on the topic, and among numerous memorable remarks were these from Czech Republic President Vaclav Klaus on Europe: “Europe is too heterogeneous for anyone to speak on its behalf” (how true) and “Capitalism without bankruptcy is like heaven without hell”. And from Oliver Hartwich: “Europe will have the next financial crisis and it will make the GFC of 2008 look like the good old days.”  Argentinian former politician, presidential contender and would-be reformer Ricardo Lopez Murphy spoke passionately about the difficulty and pain of adjustment. He entered politics in 1999 and was made Minister of Economy in 2001, but was fired by the president eight days later over his proposed fiscal austerity project.

Depressing stuff, and not surprisingly the session rapidly descended into an Eeyore-type gloomy patch about the debt crises. I felt obliged to ask why no one had mentioned the underlying problem, namely the intolerable government expenditure problems facing all the big welfare states (including New Zealand). The burdens of their entitlement programmes can only get worse with demographic trends, yet there is little evidence anywhere that governments are seriously grappling with them. It was pleasing to see the direction of the session shift somewhat. Vaclav Klaus was in strong agreement. As former 2025 Taskforce member, Trotter lecturer and smart labour market economist Judith Sloan said, the issue is all about the role of government :  if governments hand out free beer to people they will want more and will resist being deprived of it. Which is why the fiscal consolidation required on economic grounds in all these struggling welfare states is so very challenging politically. 

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4 thoughts on “LOOKING INTO THE ABYSS

  1. I think I forgot to answer your question directly in my closing remarks – but I will speak about it at the Dunes Symposium next month then.
    It was a very depressing session indeed, but as the last few days show we were certainly not too pessimistic.

  2. Perhaps some credible and influential economic commentator or group should write a global charter for fiscal responsibility – a simple creed that voters can use to measure the responsibility of politicians promises and that leaves little wriggle room. Such a charter would include tenets such as “total government expenditure shall not exceed x% of GDP” and and “the government shall not incur debts with interest payments that exceed y% of GDP”

  3. For all of 2008 we heard ad nauseum that capitalism had failed. It should be becoming clear that the welfare state has failed much more profoundly.

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